Title: Peak Oil - the emerging reality
1Peak Oil - the emerging reality
2Who am I?
- Chris Skrebowski has spent half his working life
in the oil industry and the rest as an oil
journalist - Free of corporate or political pressure he brings
a healthy scepticism to the problem - Not pessimistic by nature, not anti-Oil
- Basic approach to Peak Oil analysis
- Dont guess, assume or hope - let the numbers
talk - Observe what companies do, not what they say
3An important disclaimer
In this presentation the opinions expressed are
entirely those of Chris Skrebowski in his
capacity as an ODAC Trustee and as such do not
necessarily reflect the view of the Energy
Institute for whom he edits Petroleum Review
4The challenge of Peak Oil
- To meet a challenge
- You first have to recognise you face a challenge
- I aim to show you that
- Peak Oil is real and imminent
- That time is short
- That adaptation will not be easy
5So what is Peak Oil?
- It is the point when further expansion of oil
production becomes impossible because - New production flows are fully offset by
production declines (depletion) - You never run out of oil
- You do run out of incremental flows
- The world needs oil products to support growth
6The practical realities
- The world needs oil production flows
- Consumers need delivery flows
- Reserves are only useful as flows
- Peak oil is when flows cant meet the required
demand - This will cause an Economic Tsunami
- Worry about flows not reserves
7Alaskan North Slope ProductionReserves grow --
Production falls
8Peak Oil matters because oil dominates its markets
- 80-95 of all transport is fuelled by oil
products - 50-75 of all oil is used for transportation
- All petrochemicals are produced from oil
- 99 of all lubrication is done with oil products
- 95 of all goods in the shops get there using oil
- 99 of our food involves oil or gas for
fertilisers, agrochemicals, tilling, cultivation
and transport - Oil is the most important source of primary
energy on the planet accounting for 36.4 of all
energy
9A simple observation -- or why peak will be
earlier than most people expect
- Global production falls when loss of output from
countries in decline exceeds gains in output from
those that are expanding.
10What is the price telling us?
11What economics really says
- Economics requires that supply and demand always
balance - Economists have assumed that supply will expand
to meet demand via a high price signal - If supply cant expand we need the high prices to
destroy demand - How high do prices need to go?
12The CIBC answer
- Assessed the likely supply shortfall and the oil
price needed to reduce demand - 2006 1mn b/d and 61/barrel
- 2007 2.8mn b/d and 70/barrel
- 2008 4.8mn b/d and 80/barrel
- 2009 6.7mn b/d and 90/barrel
- 2010 8.9mn b/d and 101/barrel
13Introducing the Gator
14Why are oil supplies peaking?
- We are not finding oil fast enough
- We are not developing fields fast enough
- Too many fields are old and declining
- We are short of people and equipment
- Oilfield inflation is soaring
- Our societies are totally oil dependent
- Oil supply will peak soon. How soon?
15The real discovery trend
Past discovery according to ExxonMobil
16Oil production flows -- all new flows take two to
twenty-five years
Global new field discovery (7-10bn b/y)
Tar sands and Heavy oil
Biofuels others
Known oil reserves in production (90)
NIP 10
Yet-to-find probable
Yet-to-find possible
EOR
Current supply 84mn b/d or 30bn b/y
2 to 25 years
17How old are the fields?
- Of the 18 largest fields, 12 are in decline, 5
have some potential and 1 is undeveloped - The 120 largest fields give 50 of total
- 70 of production from fields 30 years old
- Few large recent discoveries
- Were dependent on the oil equivalent of Old men
and young boys
18What are the BP statistics saying?
- OECD production peaked in 1997 and has now
declined by just under 2 million b/d (8.8) - Non-Opec, non-FSU production peaked 2002
- North America/Mexico peaked in 1997
- North Sea - UK/Norway/Denmark peaked in 2000 now
declined by 1.2 million b/d (19.2) - Around 25 significant producers in decline
- About 28 of global production from decliners
19North Sea -- Fact or Fantasy
20The UKCS depletion reality -- production down to
1mn b/d by 2010
21North Sea production by field
- Forties monthly production to date
22North Sea production by field
- Brent monthly production to date
23The oil companies are already struggling to hold
production(21 quoted co.s account for 25 of
global production)
- In 2004 and 2005 oil production growth was
- 3.8 (04) but 0.4 (05) for the top 5 (13.5 of
global) - 2.5 (04) but 1.3 (05) for the top 10 (21 of
global) - 3.2 (04) but 0.5 (05) for the top 21 (26 of
global) - In 2004 and 2005 gas production growth was
- -1.7 (04) but -3.0 (05) top 5 (13.5 of global)
- 2.5 (04) but 1.3 (05) for the top 10 (20 of
global) - 3.2 (04) but 0.5 (05) for the top 21 (28 of
global - Annual decline rates up to 5, quarterly 8
24The top five decliners in 2005
25About to go into decline(More Type 3 losses)
- Denmark producing 0.4mn b/d went in 2005
- Malaysia producing 0.9mn b/d went in 2005
- Mexico producing 3.8mn b/d went in 2005
- Vietnam producing 0.4mn b/d went in 2005
- India producing 0.8mn b/d goes in 2006/07
- China producing 3.6mn b/d goes in 2007/08
- Collectively 9.9mn b/d or 12.3 of production
- Iran is struggling -- next to go?
26So what happened in 2005?
- The world added 2.581mn b/d of capacity
- 1.175mn b/d Opec, 1.406mn b/d non-Opec
- Depletion was 1.261mn b/d mostly non-Opec
- Then the Hurricanes cost 0.280mn b/d
- So that left just 1.04mn b/d to meet new demand,
only 40.3 of gross new capacity - No wonder prices remained high
27The oil depletion balance sheet at end 2005 and
by 2008/9
- In decline 28 but rising to 40 by 2008/9
- In danger 12 but declining to 10 by 2008/9
- Growing 48 but declining to 38 by 2008/9
- Russia 12 and steady at 12 by 2008/9
- The scales appear balanced by 2008/9
- So does President Putin decide when decline
starts? Or does Saudi geology? Or can we drive it
out to 2010 to 2011?
28How the Megaprojects database is created and used
- All publicly available data
- 2006-2012 148 Opec and 70 non-Opec projects
- Unallocated by date Opec 12, non-Opec 36
- Opec data (from their website)
- Incremental production allocated by start up date
- Production increments summed by year
- Graphed to show volumes available to meet demand
29New Opec and non-Opec capacity
30Then we add the depletion reality(and other
negative factors)
- Projects slip (typically around 20 each year)
- Companies are always optimistic (take 10 off
peak) - Depletion is already 1.2mn b/d and rising
- Enhanced recovery is slow and limited (0.5/ yr)
- Depletion rates are rising (6? 8?)
- The number of countries in decline is rising
- 90 of known reserves are in production (oil
higher)
31This is the real new capacity to 2012 (Peak in
first quarter of 2011)
32If we reduce the depletion rate by a third(Peak
moves forward by three months)
33Massive extra production 2011-2012(Peak moves
forward 12 months)
34If depletion accelerates by a third (Peak moves
backwards by 4 months)
35The wild card -- Oil producers own consumption --
subsidised 4/yr (Opec plus Russia plus
Mexico)
36Wild cards on the Supply side
- If Iraqis learn to love each other possible
supply growth of 1-1.5mn b/d by 2012? - Iran is struggling to hold production will their
production grow or decline by 2012? - Saudi is drilling like crazy and spending freely
to boost production. Will the redevelopment of
all those old fields really boost production and
for how long?
37Global liquids capacity to 2015
38Six key mitigations -- but hurry
- Efficiency in use
- Biofuels
- Heavy oils and tarsands
- Clean coal to create syngas
- Gas to liquids
- Renewables and nuclear for power generation
39U.S. Crash Program to Cut Imports
40Worldwide Crash Program Mitigation of
Conventional Oil Production Peaking A Study for
DOE NETL
Delay / Rapid growth. Roughly 35 MM bpd at year
20.
41My conclusions
- Supply will remain tight and prices high barring
a major economic setback - Oil supply will peak in 2010/2011 at around 92-94
million barrels/day - Oil supply in international trade may peak
earlier than the oil production peak - Collectively we are still in denial
- WE HAVE JUST 1,500 DAYS TO PEAK
42By 2012
Will this be the only practical use for SUVs or
4X4s?
43Contact
- Chris Skrebowski
- Editor, Petroleum Review
- cs_at_energyinst.org.uk
- 44 (0)20 7467 7117
44ODAC The Oil Depletion Analysis
Centre www.ODAC-Info.org Aberdeen
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48Collectively Humanity is
- Very clever, very ingenious, very adaptable
- So it is reasonable to be optimistic
- It is reasonable to anticipate fuels and
solutions we cannot currently envisage - But humanity is also greedy, competitive,
short-sighted and tribal - Concern apprehension are appropriate
49Current status of UKCS and onshore(as at May
2006)
- DTI itemises production from 329 fields
- 6 growing - Franklin, Rhum, Clair, Maclure, Broom
and Farragon - 6 flatlining - Captain, Goldeneye, Hannay, Howe,
Judy? and Scoter - All others (317) in decline but, about 100
stabilising at low levels
50Heavy oil -- nice to have but.
51North Sea production -- the reality
- In 1999 the UK sector peaked at 2.9mn b/d
- In 2005 it fell by 11 to 1.8mn b/d
- In 2001 Norway peaked at 3.4mn b/d
- In 2005 it fell by 7.5 to just under 3mn b/d
- Denmark peaked in 2004 and fell 3.3
- The North Sea peaked (2000) at 6.4mn b/d
- In 2005 it produced 5.2mn b/d (-18.8)
52You cant just pour out an oilfield
- Only 7 of oil field reserves are produced at the
fields peak flows - To get a peak flow of 1 million b/d you need to
develop reserves of 5.2 billion barrels - In 2004 total world discovery was 7bn barrels
- In 2005 total world discovery was 5bn barrels
- The ten year average is just 11bn barrels
- To meet 2004 demand would need 15-30bn b
53Where will the new supply come from? In 2006? In
2010? In 2015?
- In 2006 from Canada, Russia, Caspian, Brazil and
Angola Saudi, Iran, Kuwait, UAE, Nigeria,
Algeria and Libya. Plus Iraq? - In 2010 from Canada, Russia? Kazakhstan, Brazil?
and Angola? Saudi, Kuwait? Iran? UAE, Nigeria?
Libya? And Iraq - In 2015 from just Canada, Kazakhstan Iraq
54Technology. Answer or illusion?
- Almost heresy to question the merit of technology
- But is it just getting round high costs?
- Just allowing faster drainage of reservoirs?
- How much new oil is it really accessing?
- Is it really opening up new opportunities?
- What is the scale of technologies impact?
- As Colin Campbell says The new seismic allows
you to find a needle in a haystack, but it is
still a needle
55Are there realistic substitutesfor the main oil
products?
- Petrochemicals naphtha, some gas/LPG. (Few
alternatives) - Aircraft fuel jet kerosene, some Avgas. (No
realistic alternatives) - Road vehicle fuels Gasoline and Diesel
dominant. (Alternatives - Large
Investments/capital write-offs) - Ships and boats marine diesel and fuel oil. (No
realistic alternatives) - Lubricants and greases (limited alternatives)
- Power generation (little oil now used)
- Heating (increasingly substituted by gas)
56What are the substitutes?
- Alcohols - fuels and extenders (energy gain?)
- Vegetable oils - diesel substitute/extender
- Gas liquids - road fuels, feedstocks
- Coal - heating, power generation
- Hydro, nuclear, wind, waves and biomass can all
generate power. But at what cost? Little oil is
now used for power generation. - Can we make our economies all electric?
- Can we make coal-to-liquids economic?
57Whats the problem with alternatives?
- Oil has the greatest energy density of any fuel
known to man, apart from nuclear - Oil is the most flexible of all the energies
- This means all alternatives are inferior
- You can cook sausages by collecting and burning
straw but you may use more calories than you get
by eating the sausages
58New supply from Megaprojects (In million
barrels/day)
59Delaying Peak Oil
- Economic slowdown/recession
- Demand destruction via high prices
- Systems working better than expected
- Peace in Iraq
- Middle East opening to investment
- But, accelerating projects produces cost
inflation rather than more oil
60Advancing Peak Oil
- Project slippage (happens regularly)
- Increasing taxes/tighter terms (happening)
- Accelerating decline (happening)
- Upheaval in major producers (Iraq, Nigeria,
Venezuela already happened) - Accelerating demand growth (China, India)
- System breakdowns, wars and revolutions, storms
and hurricanes
61Is there any good news?
- Our prodigality means there are plenty of savings
to be had relatively easily - A 100 mpg car is easy
- Slow planes use less fuel
- Perhaps we dont need apples from Chile and
Barbecues from China - Will savings be enough - I dont know
62My conclusions?
- There are, at best, 1,500 days to Peak Oil
- Business as usual after 2010 is unlikely
- High prices will continue
- Restricted supply will continue
- We are moving into a new world
- It is a land without maps
- We are all likely to be poorer
- The developing world will be badly hit
63In order to find oil you need
- A source rock or kitchen where the oil was
created - A trap or closure that contains a commercial
volume of oil - All the clever technology to locate the oil
64So how did it get there?
- Mainly in two periods of intense global warming
-- vast algal blooms - Sealed in by sediments
- Cooked to oil (too much cooking gives gas)
- Trapped on its way to the surface
- Found and exploited by man
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67Who has the reserves? Who has the production?
- Current world reserves total 1188.6 80.2
- North America (inc Mexico) 61 14.2
- Central and South America 101.2 6.8
- Europe/Eurasia (inc Russia) 139.2 17.6
- Middle East 733.9
24.6 - Africa
112.2 9.3 - Asia-Pacific 41.1
7.9
68Global production by region
6920 companies produce 67 of global production
70You cant drink oil so how do we make use of it
in Europe?
- 24.1 gasolines -- petrochemicals/petrol
- 45.3 middle distillates -- jet kero/diesel/ho
- 11.3 fuel oil -- heavy industry/ships/power
- 19.3 other-- lubes, solvents, gases
71Hydrocarbons dominate - can this continue in the
21st century?
72Steady energy growth
- The 3 hydrocarbons represent 71-98 of total
energy supplied - Primary energy Growth 2.2/yr (last 20 years)
- Oil 10 year growth rate 1.95/yr
- Gas 10 year growth rate 2.81/yr
- Coal 10 year growth rate 2.54/yr
- Slow move to gas and coal at oils expense?
73The depletion challenge
74The ODAC answer
- The oil supply available would allow
- 2005 demand growth of not more than 2
- 2006 demand growth of just over 2
- 2007 demand growth of just under 2
- 2008 demand growth of barely 1
- 2009 demand growth of just under 1
- 2010 No demand growth at all
752004 was a key year for depletion
- All spare capacity used (0.5-1.0mn b/d in Saudi?)
- So now we have an accurate baseline
- But also in 2004
- Refinery spare capacity nearly disappeared
- Sulphur removal capacity did disappear
- Chinese demand exploded
- Tankers were costly and in short supply
- But, skilled personnel is the biggest shortfall
76The oil companies are already struggling to hold
production
- In the first half of 2005 oil production was
- Down 1.88 below 2004 for the big 5
- Down 1.25 for the Big 10
- In the first half of 2005 gas production was
- Up 1.2 for the Big 5
- Down 0.23 for the Big 10
- Quarterly oil decline rates range up to 8
- Annual gas decline rates of up to 5
77Oil projects are slow and well publicised
- 2.5 years for an onshore rework (Saudi AFK)
- 3-4 years for new onshore projects (Algeria)
- 5-7 years for a major offshore field development
- 8-9 years for Nigeria - Bonga, Agbami, Akpo
- 5-6 years for a new refinery
- Over 2 years for a new sulphur removal plant
- The development die is largely cast to 2010
- Thats why the economists are misleading us
78Gas discovery is also falling short
- Gas discovery peaked in 1970s
- Demand first exceeded discovery in 1985 then
continuously from 1990 to 1995 - Since 2001discovery has been under half of usage
- Gas production is already falling in the USA,
Canada, UK, Germany, Italy and New Zealand
79Actual supply will always be lower(Remember the
random factors)
- Projects slip typically 10-20 each year
- Companies are always optimistic
- Governments are always optimistic
- Enhanced recovery is quite limited
- Depletion rates are rising
- The number of countries in decline is rising
- 90 of known reserves are in production
80Likely future oil demand growth(In million
barrels/day)
- In 2003 oil demand grew by 1.8mn b/d (2.3)
- In 2004 oil demand grew by 2.8mn b/d (3.5)
- In 2005 4th revision is 1.6mn b/d (1.9)
- In 2006 first estimate is 1.75mn b/d (2.1)
- Twenty year average is only 1.5-1.8mn b/d (1.8)
- So 2 growth is an easy working rule
- Does Chinese and Indian demand growth represent a
paradigm shift?
81How does depletion work?
- Three sorts of depletion
- Type 1 is within field like different pumps in
bar - Type 2 is within country like different bars
- Type 3 and most important is national like
different pubs, it is visible depletion - Total (1,2 3) depletion around 5 or 4mn b/d/yr
but may actually be nearer 7 - Type 3 depletion is around 1mn b/d but rising
82Type 3 depletion acts like new demand
- Over 50 countries now depleting (20 large)
- In 2004 some 27.4 of supply came from countries
in outright depletion - Ten countries producing over 0.5mn b/d were in
decline in 2004 - More large producers are set to decline
83The Russian Enigma
- 50-95 of non-Opec growth in 2001-2004
- 1.4 growth in Russian production in 1H2005
- Has policy changed? Has growth run out?
84Peak Oil in 2008?
- Whatever approach we use the answer seems to be
Peak by 2008 - Before that, if all goes to plan, the world can,
possibly, meet likely demand - After that demand can only be met by massive
demand destruction - But, Peak could be this winter
85North Sea production by field
- Piper monthly production to date
86North Sea production by field
- Fulmar monthly production to date
87North Sea production by field
- Schiehallion monthly production to date
88North Sea -- fantasy No 1
- Technological breakthroughs such as multilateral
drilling helped defy predictions of decline in
Britains North Sea that have been made since the
1980s the region is only now peakingThe
Economist Special Report The Oil Industry,
April 22 2006
89Crude oil production
- Current production over 84 million barrels day
- Thats 42 supertankers a day
- Worth 4-4.5 billion a day or 1.5 trillion/yr
- The biggest business in the world
- But, few have ever seen any crude oil
90This is the real new capacity to 2012 (Peak in
first quarter of 2011)(Ver 2)